The UK budget 2024, as expected, included various tax rises, though income tax rates remain unchanged. The key tax reforms were to the non-domicile regime, inheritance tax, capital gains tax and pension transfers to QROPS.
The UK Chancellor, Rachel Reeves, presented the much-anticipated first Budget under the Labour administration on Wednesday, 30 October.
The government’s stated aims of the Budget are to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain. As part of this, it included £40 billion of tax rises.
UK budget 2024 – Pensions
Triple lock
The government will maintain the State Pension Triple Lock for the duration of this parliament. The basic and new State Pension will increase by 4.1% in 2025-26, in line with earnings growth, meaning over 12 million pensioners will receive up to £470 per year.
Pension funds subject to inheritance tax from 2027
From 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for inheritance tax purposes. Pension scheme administrators will become liable for reporting and paying any inheritance tax due on pensions to HM Revenue & Customs (HMRC).
The government have said this provision will apply to UK registered pensions and QNUPS , but has not mentioned QROPS (Qualifying Recognised Overseas Pension Schemes) as yet.
Overseas Transfer Charge extended
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to QROPS, unless an exclusion from the charge applies. In order to address the risk of individuals receiving double tax-free allowances, the government has now removed the exclusion from the Overseas Transfer Charge for transfers to QROPS in the European Economic Area (EEA) or Gibraltar, with effect from 30 October 2024.
While we were aware of the potential for amended legislation to address the ‘double bubble’ for tax free cash, this method of using the overseas transfer charge was unexpected, as was the wide impact of the measures.
The provision impacts all individuals (other than residents of Malta and Gibraltar for a QROPS in their jurisdiction). wishing to transfer their pension to a QROPS established in the EEA or Gibraltar. Although the measure has been brought in to stop UK residents benefiting from a double tax-free allowance, by removing section 244C Finance Act 2004 entirely, this also removes the exclusion for EEA/Gibraltar residents transferring into a QROPS resident in a different EEA member state.
We believe this to be an over-extension of what was intended, since the Policy Paper published at the time of the Budget states that ‘it will not affect individuals relocating to an EEA country or Gibraltar bringing their pension savings with them. This is because an exclusion will apply for members who are resident in the same country as that in which the QROPS receiving the transfer is established…’ This statement does not account for the fact that, for retirees, there are no QROPS products available in countries other than Gibraltar and Malta.
We can only hope this over extension will be rectified, but only time will tell. In the meantime, transfers made after 30 October 2024 (except for Malta/Gibraltar residents) will be subject to the overseas transfer charge of 25%. The only exception may be where the transfer request was submitted to the ceding pension scheme before the budget and is completed before 30 April 2025.
UK budget 2024 – Domicile
The plans previously released are those that will be introduced from 6th April 2025. The overall plan is to move to a residence-based tax system for all.
Domicile and income tax
For individuals who have not been UK tax resident in any of the 10 consecutive years prior to their arrival, the new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence. This includes income from dividends, accrued income profits and offshore income gains. This does not apply to all income; there are some exceptions.
For non-domiciled individuals and deemed domiciled individuals who do not qualify for the four-year foreign income and gains regime, the protection from tax on foreign income and gains arising within settlor-interested trust structures (for example, an excluded property trust) will no longer be available.
Domicile and inheritance tax
The current domicile-based system of inheritance tax will be replaced with a new residence-based system. This will affect the scope of non-UK property brought into UK inheritance tax for individuals and trusts. The effective date for the new law will be 6 April 2025.
An individual will be in scope for inheritance tax on their non-UK assets where they are classified as a long-term UK resident. To be a long-term resident an individual must be resident in the UK for at least 10 out of the last 20 tax years.
On leaving the UK, the time an individual remains in scope for inheritance tax on their non-UK assets will be between 3 and 10 years depending on how long they lived in the UK. In all circumstances an individual will not be treated as a long-term resident for inheritance tax in the tax year following 10 consecutive years of non-UK residence.
Trusts
For trusts, from 6 April 2025 the domicile test will be replaced with the long-term residence test. This will mean that non-UK settled assets will only be excluded property at times where the settlor is not classified as a long-term resident. Following the settlor’s death, ongoing charges will be based on whether the settlor was a long-term resident at death.
Where a settlor ceases to satisfy the long-term residence test, due to leaving the UK, relevant property becomes excluded property and result in an exit charge.
UK budget 2024 – Income tax and National Insurance
The government will stop the freezing of income tax and National Insurance contributions thresholds from 6 April 2028. From this date, these personal tax thresholds will be uprated in line with inflation.
The government is increasing the rate of employer National Insurance contributions (NICs) from 13.8% to 15%. It is also reducing the per-employee threshold at which employers become liable to pay National Insurance (the Secondary Threshold) from 6 April 2025 to £5,000.
Capital gains tax (CGT)
The main rates of capital gains have changed as follows:
- For assets other than real estate, the main rates of capital gains tax will increase from 10% and 20% to 18% and 24% respectively, for disposals made on or after 30 October 2024.
- For personal representatives and trustees, the rate of capital gains tax will change from 20% to 24% for disposals made on or after 30 October 2024.
- For individuals with assets that qualify for Business Asset Disposal Relief and Investors’ Relief, CGT will change:
- from 10% to 14% for disposals made on or after 6 April 2025, and
- from 14% to 18% for disposals made on or after 6 April 2026.
- For real estate, the rates of capital gains tax remain unchanged at 18% and 24%.
Investors’ relief
Investors’ Relief provides for a lower rate of CGT (see above) to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, subject to a lifetime limit of £10 million of qualifying gains for an individual. For disposals made on or after 30 October 2024, the lifetime limit of £10 million is reduced to £1 million.
Inheritance tax (IHT)
Current thresholds
The current inheritance tax thresholds were due to remain frozen until April 2028. The government is extending these threshold freezes for a further two years to April 2030.
Business property relief and agricultural property relief
The government announced it will reform agricultural property relief and business property relief from 6 April 2026.
For disposals from April 2026 the current 100% rate of relief will be restricted to the first £1 million of combined agricultural and business property. Thereafter the rate of relief will be 50%, effectively reducing the 40% inheritance tax rate to 20%.
The government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. This provision excludes unlisted private companies.
There will be a combined £1 million allowance for trustees on the value of qualifying property to which 100% relief applies, on each 10-year anniversary charge and exit charge, consistent with the treatment of qualifying property chargeable to inheritance tax on death.
Stamp duty
The government is increasing the surcharge for Stamp Duty Land Tax (SDLT) on purchases of additional residential properties by individuals, and purchases of residential properties by companies, from 3 to 5 percentage points above the standard residential rates of SDLT.
The measure also increases the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%.
UK budget 2024 – take personalised advice
This 2024 Budget has introduced some significant changes, many of which will impact British expatriates as well as UK taxpayers. You may wish to review your wealth management to establish how your existing arrangements may be affected by these reforms, as well as to confirm if it is up to date for your country of residence.
Contact our specialist cross-border advisers if you would like to understand how these reforms affect you personally, or to find out if there are any steps you can take to protect yourself. If you are planning to relocate from the UK to Spain, France, Portugal, Cyprus or Malta, we can help you put a tax-efficient plan of action in place.
Contact Blevins Franks to discuss your financial circumstances now.
